Category: Asset Management

The European Securities and Markets Authority (ESMA) has issued draft regulatory technical standards (RTS) under the updated Alternative Investment Fund Managers Directive (AIFMD II) to govern open-ended loan-originating alternative investment funds (AIFs). These proposals aim to ensure robust liquidity management by requiring fund managers to align liquidity risk management systems with the funds’ investment strategies and redemption policies.

Key measures include defining suitable redemption policies, maintaining adequate liquid assets to meet investor demands, and conducting quarterly liquidity stress tests. Managers must also implement systems to monitor liquidity risks continuously, considering factors such as portfolio diversification, credit quality, and investor behaviors. The RTS emphasize the importance of carefully calibrated liquidity management tools and stress scenarios to address market pressures.

These proposals reflect ESMA’s commitment to enhancing market stability and investor protection by promoting transparency and resilience in the operations of loan-originating AIFs.

LPA is your preferred and trusted RegTech supplier, providing expert guidance to navigate the upcoming changes of the AIFMD II regulation.

The Council of the European Union has reached an agreement on a proposed Financial Data Access (FIDA) framework, designed to create a standardized system for sharing customer data among financial institutions and service providers. This initiative is a key step in modernizing the EU’s financial sector, fostering innovation, improving competitiveness, and giving consumers more control over their data concerning financial information. The framework will apply to diverse financial data, including mortgages, loans, investments, insurance products, pensions, and crypto-assets.

Under the proposed rules, financial institutions will be required to provide secure and standardized access to customer data upon request, ensuring transparency while respecting trade secrets and intellectual property. Consumers will gain access to dashboards enabling them to manage their data permissions in real-time, including granting, withdrawing, and monitoring access. To balance responsibilities, financial institutions may receive compensation for making data available under certain conditions.

With the Council’s agreement, negotiations with the European Parliament will now proceed to finalize the legislative text. Once adopted, the regulation will be published in the EU’s Official Journal and come into effect across the member states two years after publishing it with Regulatory Technical Standards (RTS) to be developed. This move represents a critical step in adapting the EU’s financial sector to the digital age while safeguarding consumer rights and encouraging market innovation.

The European Banking Authority (EBA) has explored the potential advantages and challenges of tokenised deposits, emphasizing the impact of distributed ledger technology (DLT). Tokenised deposits could enhance programmability and efficiency, enabling automation of transactions via smart contracts, which reduces costs, improves speed, and supports complex settlements. These features, however, depend on specific design choices and use cases.

DLT-based systems also have the potential to bolster anti-money laundering (AML) compliance by improving transparency, traceability, and security. Transactions recorded on immutable ledgers can facilitate real-time monitoring and automated compliance processes, although challenges like private key theft and operational vulnerabilities persist.

Consumer protection remains a key concern. Widespread adoption may be hindered by low levels of financial literacy, lack of access to digital tools, and risks of exclusion. Effective disclosures and education will be crucial to mitigate confusion among consumers.

On the regulatory side, distinguishing tokenised deposits from similar instruments like e-money tokens (EMTs) poses classification challenges. The regulatory frameworks for deposits and EMTs differ significantly in terms of rights, protections, and eligibility for deposit insurance.

Additionally, operational risks such as dependency on third-party DLT providers and potential liquidity management challenges highlight the need for robust safeguards. The programmability of tokenised deposits could affect bank liquidity and systemic stability, requiring careful monitoring and empirical analysis as adoption grows.

The EBA’s findings underscore the transformative potential of tokenised deposits while stressing the importance of managing associated risks to ensure consumer confidence and financial stability.

The European Securities and Markets Authority (ESMA) has released its Final Report on Guidelines for Templates and Standardized Tests related to the classification of crypto-assets under Article 97(1) of Regulation (EU) 2023/1114. These guidelines aim to provide harmonized templates for explanations and legal opinions, ensuring consistency in regulatory classification under the Markets in Crypto-Assets Regulation (MiCAR).

The templates address the requirements under Article 8(4), mandating detailed explanations for why a crypto-asset should not be considered an e-money token (EMT), asset-referenced token (ART), or a crypto-asset excluded from MiCAR. Similarly, under Article 17(1), issuers of ARTs—particularly credit institutions—are required to submit legal opinions validating that their assets meet the regulatory criteria for classification.

ESMA’s move comes in response to challenges faced by competent authorities in reviewing the classification of crypto-assets due to inconsistent or insufficient information. Without standardized templates, authorities across Member States risk regulatory arbitrage, inconsistencies in application, and potential lapses in compliance.

The guidelines introduce a standardized test to harmonize how crypto-assets are assessed under MiCAR. This test seeks to clarify whether a crypto-asset falls within the scope of Titles II, III, or IV of MiCAR, streamlining the classification process. ESMA also emphasized the importance of balancing harmonization with flexibility, acknowledging that national interpretations of related financial products may differ.

By implementing these measures, ESMA aims to ensure that competent authorities receive sufficiently detailed and consistent information. This will strengthen the regulatory framework, reduce disparities between Member States, and mitigate the risks of regulatory arbitrage. The publication of these guidelines marks a significant step towards a unified approach to crypto-asset regulation in the EU, providing clarity for issuers and enhancing market stability.

21X has become the first company to receive a BaFin-issued license for a fully regulated blockchain-based trading and settlement system. This marks a pivotal moment for European capital markets, highlighting the growing momentum of distributed ledger technology (DLT) in the financial sector.

The company plans to launch its Frankfurt-based platform in Q1 2025, enabling the trading of tokenized assets, including securities, funds, and real-world assets, all within the robust regulatory framework established by the EU.

As a leading RegTech provider, LPA Lucht Probst Associates has long supported international asset managers in navigating regulatory compliance and automating reporting processes, particularly for high-growth areas such as ETPs and ETNs. We congratulate 21X on this milestone, which will shape the future of tokenized capital markets.

The European Securities and Markets Authority (ESMA) has recently introduced updated guidelines for cross-border distribution of funds, emphasizing transparency and investor protection in marketing communications. The new framework highlights several key areas:

Identification of Marketing Communications

Marketing materials for UCITS and AIFs must secure prior regulatory approval when required. Such communications must explicitly state they are marketing in nature, using terms like “Marketing Communication” or concise tags like “#MarketingCommunication” on platforms such as social media. Investors are directed to refer to the fund’s prospectus or related documentation for detailed insights. Disclaimers must be clearly integrated, such as within videos rather than appended at the end.

Description of Risks and Rewards

Both risks and rewards must be presented equally and fairly, avoiding techniques like footnotes to downplay risks. These elements should be displayed side by side or in a manner that ensures equal prominence, leveraging tables or lists for visual clarity.

Fair, Clear, and Non-Misleading Communication

Marketing content must align with the knowledge level of its target audience. Retail-focused material should avoid technical jargon and ensure consistency with regulatory documents. Claims must be backed by verifiable sources, with balanced and accurate representations of fund features. Misleading comparisons or overpromising are strictly prohibited.

Cost, Performance, and Sustainability

Cost implications must be detailed, showing their effect on returns, particularly in foreign currency contexts. Performance claims should span 5–10 years and avoid unrealistic forecasts. Sustainability aspects must be truthful, matching the fund’s strategy without exaggeration.

The ESMA guidelines aim to enhance investor trust by ensuring marketing communications are transparent, balanced, and closely tied to regulatory disclosures.

We at LPA are your trusted partner in navigating regulatory changes, providing expert guidance to asset managers to ensure compliance and optimize operations in a dynamic landscape.

1. Strengthened Trading Controls and Professional Client Assessment

Directive (EU) 2024/790 (MiFID II Review) introduces mandatory disclosures about the circumstances leading to trading halts or constraints, enhancing transparency in market disruptions as part of the requirements concerning Systems resilience, circuit breakers and electronic trading . A new provision allows investors to qualify as professional clients upon passing a test proving their understanding of transactions and associated risks. These changes aim to modernize trading practices while ensuring only knowledgeable clients access complex investment opportunities.

2. European Single Access Platform (ESAP) and Enhanced Market Reporting

Under Directive (EU) 2023/2864, the ESAP will centralize key market data, including information on trading obligations, issuer reporting, and administrative sanctions. Investment firms must now inform clients about where trades are executed and ensure comprehensive pre-trade and ongoing financial disclosures, such as audited annual reports. Member States are tasked with ensuring that regulatory information is accessible, while ESMA oversees detailed reporting frameworks, including manufacturer data and suspension criteria. This initiative improves transparency and harmonizes regulatory data sharing across the EU.

3. Retail Investor Protections and Cross-Border Services Oversight

The EU Commission’s Retail Investment Package emphasizes retail investor protection by requiring firms to assess transaction appropriateness and document client approvals for risk warnings. Independent advisors recommending well-diversified, non-complex and cost-efficient instruments to retail clients are exempted from collecting informations about the clients knowledge and experience about the considered financial instrument or service. Additionally, firms serving over 50 cross-border clients must report detailed service scopes to their home NCAs, while ESMA develops centralized reporting databases. Member States are encouraged to promote financial education and provide clear channels for reporting regulatory infringements.

Navigating these regulatory shifts can be complex, but LPA is your trusted partner, ensuring compliance and strategic adaptation to these evolving frameworks.